High Noon In The Router Wars
At a splashy event at Silicon Valley's Computer History Museum on May 25, Cisco Systems (CSCO ) Chief Executive John T. Chambers will finally unveil a product that the networking industry has been expecting for the past two years: a top-of-the-line router code-named HFR, for "huge fast router." By stringing together dozens of the powerful new products, HFR customers will be able to move more Internet traffic in less time than ever before -- by a long shot, say insiders.
Cisco's new router hits the market at a critical point in its intensifying competition with Juniper Networks. Just as telecom companies are starting to spend big bucks for new Net-based routers to replace decades-old telecom voice networks, the smaller but faster-growing Juniper has beat Cisco to market with cutting-edge new products.
True, Cisco is riding high once again thanks to robust sales to corporations, which use its gear to run their networks. But Cisco needs the HFR to be a big hit to reverse a disturbing slide in the important market for "core routers" that make up the backbone of the Internet. And of late, Cisco has been losing ground as both phone companies and Internet Service Providers have turned to Juniper instead. Cisco's share of this $733 million market has fallen from 70% in mid-2002 to 59%, says market researcher Dell'Oro Group, while Juniper's has jumped from 23% to 34%. And some expect Juniper to leapfrog Cisco yet again when it brings out its own mongo new router in coming months.
Can Cisco regain momentum? Cisco execs aren't commenting on their router. But much will depend on a new software strategy that accompanies the rollout of the HFR. In the past, Cisco based all of its products on its Internetworking Operating System software, or IOS, which is to corporate networking gear what Microsoft Corp.'s (MSFT ) Windows is to PCs. Trouble is, telcos need far greater reliability and better management tools to serve their millions of customers compared to the needs of an individual PC user or even a corporation. Now Cisco will unveil a new program, code-named IOX, designed specifically to address telcos' concerns, say industry insiders and a customer who has seen the software.
Cisco had little choice but to forge ahead with new software. Problem is, IOX will initially work only on Cisco's new HFR router, meaning it isn't compatible with other routers and other networking equipment that Cisco currently sells to carriers. While that problem will eventually be resolved, customers may be hesitant to buy these other products from Cisco until they, too, run the new software. What's more, most big telcos are loath to buy major new equipment without extensive testing. And that can take years.
`TABLE STAKES'. Then there's the problem of Juniper. One user says the HFR's power is only slightly greater, if that, than Juniper's current top-of-the-line box. While he says IOX has a slight edge over Juniper's software, it may not be enough to incur the costs and reliability risks of changing suppliers. "IOX is just table stakes," says the buyer. "Honestly, this just keeps Cisco in the game."
Indeed, some observers think Juniper is poised to accelerate its share gains -- particularly if its upcoming high-end router, about which little is now known, leapfrogs Cisco's technology again. In the most recent quarter, Juniper's sales rose 43% from a year earlier, including a 31% jump in its $75 million core router business. Much larger Cisco, whose sales rose 22% overall, saw its router sales grow a tepid 3%. Analyst John Freeman of the Precursor Group thinks Juniper could drive Cisco's share of the high-end router market below 50% by yearend. That would be a painful slap to Cisco's efforts to prove it's a pacesetter in innovation as well as a financial leader. "The market has been hearing about HFR for about three years," says Juniper CEO Scott Kriens. "But it's just not something customers are asking about."
Chambers is surely banking on all that changing come the May 25 unveiling. Whether customers feel HFR was worth the wait will say plenty about Cisco's growth prospects for years to come.
By Peter Burrows in San Mateo, Calif.